Category Archives: Health insurance

The Senate and Congressional income tax bills propose to eliminate itemized medical deductions. For the elderly, who depend on pensions and social security income, and who require nursing homes and private caregivers, this deduction is essential. Nursing home expenses and caregiver costs can easily exceed $100,000 annually. If an elderly individual with an annual income of $80,000 is forced to pay taxes on the $80,000, this individual will not have the financial resources for necessary living expenses.

Larry Goldsmith is a partner and director of litigation services at CJBS, LLC. Mr. Goldsmith is regularly engaged to be a financial forensic expert witness in matters of divorce and business litigation.

Questions or comments? E-mail Larry Goldsmith at larry@cjbs.com if you have any questions about this posting or if he can be of assistance in any way.

Insurance companies have begun to issue rebates to policyholders on premiums resulting from final rules on the calculation and payment of medical loss ratio.

As a quick summary, workers are entitled to the same share of the rebate as they pay for their health insurance. If an employer pays 80 percent and the worker pays 20 percent, then the rebate should be split 80/20, respectively. The rebates may be paid back to the workers in cash or applied to reduce premiums. The workers receiving the benefit can be either the actual workers who paid the premiums in 2011 or can be those who are currently employed in 2012.

The tax treatment of the rebate or credit has lots of variables. Treatment will differ depending on whether the plan is a pre-tax or an after-tax plan. It further varies depending on whether it is paid to current employees or to 2011 employees. Finally, it may depend on whether or not the employee deducted the payment on a 2011 return.

In a pre-tax plan, the employee would have to pay income taxes and possibly, but not always, employment taxes on any rebates they receive. In an after-tax plan the employee would not have to pay tax on the rebate unless the employee deducted premiums and received a tax benefit for the deduction. The employee may not receive any money if the employer decides to use it to lower future premiums or add benefits, but the “pre-tax” employee would have an increase in taxable wages and perhaps a larger fringe benefit reduction for the amount of refund applied to premiums.

The rebates are not taxable if received from or applied to premiums in an “after tax” (unless deducted) plan, but the rebates reduce current year medical expenses for the purpose of itemized deductions if paid to the employees participating in 2011, but perhaps not if distributed based on 2012 employment. Treatment of the rebate is extremely fact specific, and is discussed in detail at: http://www.irs.gov/newsroom/article/0,,id=256167,00.html

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail Michael Blitstein at michael@cjbs.com or Don Schaffer at numbersman@cjbs.com if you have any questions about this posting or if we may be of assistance in any way.

The American Recovery and Reinvestment Act of 2009 (ARRA) provided a temporary subsidy for the cost of COBRA continuation health coverage. On December 21, 2009, President Obama signed legislation extending the COBRA premium subsidy. The new law addresses the uncertainties employers were facing regarding the subsidy. The following facts concerning the extension should be of interest to all employers and is excerpted from the GCG Financial, Inc. Legislative Brief:

Eligibility Period – Extended through February 28, 2010

Before the subsidy extension, an individual had to be eligible for COBRA before December 31, 2009, in order to receive the premium subsidy. This was true even if the individual was involuntarily terminated from employment before December 31, 2009. The extension provides that individuals who become eligible for COBRA because of an involuntary termination occurring during the period from September 1, 2008, through February 28, 2010, will be eligible for the subsidy if they elect COBRA.

Length of Subsidy – Extended to 15 months

Initially, the COBRA premium subsidy was available to assistance eligible individuals (AEIs) for a maximum of nine months. The new legislation extends the premium subsidy period by six months to a total of 15 months. However, employees and employers should keep in mind that the COBRA premium subsidy does not affect the length of COBRA coverage itself.

Retroactive Payments – How to Handle Employees Caught in the Middle

The new law contains provisions regarding AEIs whose 9-month subsidy period expired before the extension was passed. These AEIs may have let their COBRA coverage lapse because it was too costly without the subsidy. Others may have kept the coverage and started paying the full amount of the premium. These AEIs will be able to benefit from the subsidy extension retroactively. Special notices to these individuals are required, as explained below.

AEIs who failed to pay their COBRA premiums once their initial subsidy period expired can retroactively pay the premiums to maintain COBRA at subsidized rates for the additional six months. The premiums must be paid no later than February 19, 2010, or 30 days after the AEI receives notice of the extension, whichever is later.

If an AEI paid the full amount of the COBRA premiums after the 9-month subsidy period ended, but is now eligible for additional assistance, the employer must either reimburse the individual for the excess premium amount paid or provide a credit that reduces later premium payments.

Notice RequirementsThe legislation includes additional notice requirements for group health plans. In general, plan administrators must provide notice of the subsidy extension to individuals who are AEIs at any time on or after October 31, 2009. The notice must be provided by February 19, 2010. Also, election notices sent to individuals who experience a qualifying event on or after October 31, 2009, must include information regarding the subsidy extension.

The new law also requires notices to the following individuals: (a) those who are eligible to make retroactive premium payments because they let their COBRA coverage expire once their subsidy period ended, and (b) those who are entitled to receive reimbursement or credit because they are eligible for additional assistance but paid the full amount of the premium for coverage. The plan administrator must notify these individuals of the subsidy extension within the first 60 days of the individual’s transition period. The transition period includes any period of coverage beginning before December 21, 2009, that will now be covered by the subsidy due to the extension.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.